According to a recently published report by HSBC, the Indian inflation’s ‘K-shaped’ trend is hurting certain sections more than others.

Key findings of the report:

  • Rural consumers are more impacted by price-rise than their urban counterparts from K-shaped trends.
    In May, it exceeded the urban segment by 1.1 percentage points, primarily driven by elevated food inflation.
  • Ongoing heat waves, pointing out that higher food and lower core inflation are coexisting because of crop damage and livestock mortality pushing up the former.
  • The government cuts several fuel prices but fuels like petrol, diesel, and LPG are not commonly used in rural areas, like they are in urban areas, leading to rural inflation being much higher than urban.

If rainfall patterns do not return to normal during July and August, the potential food crisis in 2024 may surpass that of 2023, especially considering the limited stocks of wheat and pulses in storage.

  • This could enable the RBI to reduce interest rates, potentially leading to an expected 0.5 percent rate cut by March 2025.
  • Till now, rains remain 17 percent below normal with the northwest region, which grows most of India’s cereal, having a 63 percent deficit.

What is a K-shaped recovery?

A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. 

  • It is in contrast to an even, uniform recovery across sectors, industries, or groups of people.

In a K-shaped recovery, some parts of the economy may experience strong growth while others continue to decline, thus resembling the two arms of the Roman letter “K.”

  • K-shaped recovery is described in terms of data broken out across different parts of the economy.

The term “K-shaped” recovery gained prominence in 2020 and 2021 in the wake of the sharp recession in the U.S. that accompanied the COVID-19 pandemic.

Features of the K-shaped recovery

  • Divergent recovery rates
  • Income Inequality
  • Sectoral Disparities

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